ABA: Flexibility key to expanding mortgage refinances, streamlined loss mitigation

If regulators want to expand the number of consumers who can take advantage of mortgage refinances, then focusing on expanding consumer education and providing banks more flexibility in their offerings would be a better approach than pushing new products such as “auto-refi” loans, the American Bankers Association and Consumer Bankers Association said today in a joint letter to the Consumer Financial Protection Bureau.

CFPB in September issued a request for information on ways to facilitate mortgage refinances for consumers who would benefit from refinancing, as well as ways to reduce risks for consumers who experience disruptions in their financial situations. One suggestion by the agency was for creditors to offer one-way ARMs or loans that automatically trigger an offer to refinance. ABA and CBA said both have their downsides. The products “will introduce investor risks and other difficulties that will ultimately lead to higher prices and would not improve access to credit for borrowers,” the associations said. “Given this reality, there is currently no secondary market for these types of loans, and designing them will be highly complex and challenging.”

The associations instead suggested the bureau explore ways to expand the role of consumer education. They also suggested providing banks with greater flexibility to offer streamlined modification programs and conduct consumer outreach and education. Finally, CFPB should coordinate actions with other regulators to ensure consistency with existing laws and regulations, and it should consider the costs of those regulations. “The cost to originate a mortgage loan for mid-sized banks has nearly doubled from approximately $4,800 in 2008 to approximately $9,140 in 2021… These high fixed costs ultimately get passed to the consumer, which disproportionally impacts individuals at the lower end of the income distribution,” the associations said.

ABA and CBA also offered multiple recommendations to modify the mortgage servicing rules in order to promote consumer protection and improve the efficiency and effectiveness of mortgage servicing, which will benefit both borrowers and financial institutions.